Communication key to managing captive insurers

AVENTURA, Fla. — When it comes to managing a captive insurance company, effective communication with both internal and external stakeholders is key.

A carefully crafted message is essential when dealing with state insurance regulators, panelists said last week during discussions held at the World Captive Forum in Aventura, Fla.

David Provost, State of Vermont deputy commissioner of captive insurance, said founders of captives interacting with his office would do well to stress the legitimate insurance reasons the captive was envisioned, as opposed to any expected tax and financial benefits.

“We want to hear less about your captive as a profit center and more about the insurance problems you need to solve,” Mr. Provost said. “We are not in the business of licensing tax strategies. We license insurance companies.”

Maria Sheffield, captive program manager for the Missouri Department of Insurance, agreed that framing a captive's insurance value properly was is imperative. “We want to look and make sure that companies understand that they are taking on risk,” she said. “We are concerned when individuals looking to set up a captive see it solely as a wealth transfer mechanism.”

An ability to convey a captive's value is essential for those pitching captive projects internally. Don Janezic, New York-based chief financial officer at R.C. Bigelow Inc., said he worked to win over several key constituencies when he first brought up the idea of establishing a captive insurer at the tea company in 1996. “When I first brought the idea to our treasurer, he looked at it and said I was crazy,” Mr. Janezic said. “After a little bit of conversation, I got him to buy into it.” After similar initial reactions and acceptance from the company's vice president of human resources and corporate attorney, the captive launched successfully and now handles $40 million in annual premium.”

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Steven Resnick, Nashville, Tenn.-based chief operating officer and chief financial officer at Caterpillar Insurance Co., said when pitching his captive to the C-level he worked to stress the ways in which the captive would enable the equipment manufacturer's business model. For example, the extended warranty policies the captive would insure would give them an advantage in a competitive marketplace. Elsewhere the claims data the company collected could be fed back to the company's engineer's to help improve product design and quality, Mr. Resnick said.

“The market demanded extended warranties on this type of equipment,” he said. “So it was easy as a risk manager to go to the C-suite and say that a captive will help increase sales and market penetration. It wasn't only about the financial benefits a captive can bring.”